As the facts slowly surface surrounding FTX’s spectacular fall from grace, there are signs of collateral damage beginning to emerge. Not long after BlockFi announced it was pausing customer withdrawals, a lesser-known Hong-Kong based exchange AAX has followed suit, but for more opaque reasons.
While some may not have heard of it, AAX claims to have 2 million users in 100 countries. Now the exchange has suspended all withdrawals on the basis of a “scheduled system upgrade that will help protect our users from the multiple malicious attacks that we’ve observed during this vulnerable time”. Notably, it didn’t go into any details regarding which “malicious attacks” it was attempting to mitigate.
The company claims that part of the reason for the alleged upgrade was due to a “failure of [its] third-party partner, some users’ balance data were found abnormally recorded in [their] system”. On those grounds, AAX announced it was “limiting [its] services to prevent further risks”, as its “technical team has had to manually proofread and restore the system to ensure maximum accuracy of all users’ holdings”. Later on, the company said:
“In this light, withdrawals have been suspended to avoid fraud and exploitation. We understand it is important for users to be able to withdraw and transact as soon as possible, and we are working extremely hard to offer limited withdrawals to minimize risk.”
The announcement noted that regular operations would resume “within 7 – 10 days to ensure the utmost accuracy” but added that the company was “working extremely hard to offer limited withdrawals to minimize risk”. Understandably, alarm bells have been raised, particularly given the timing amid widespread crypto contagion.
The elephant in the room
In a statement provided to Bloomberg, AAX vice president Ben Caselin said, “The FTX situation has put immense pressure on exchanges everywhere with users nervous about exchange holdings.” He added, “It’s my observation this can be resolved in a few days, although rebuilding market confidence may take months”.
Since the announcement, the company has tried to calm the storm brewing on Twitter, saying that an announcement regarding a “plan” would be made November 16.
For the most part, users are unconvinced regarding the alleged reason for suspending services, particularly given its suspicious timing. Most appear to believe that AAX is embroiled in the FTX calamity and have said things like “RIP to my money” and that the exchange was the “next rug to be pulled”.
Stepping back for a minute, the most obvious question that remains unanswered is whether there is evidence that users were forewarned of the suspension prior to FTX falling off a cliff. That would likely be the most effective strategy AAX could employ to mitigate user concerns. However to date, evidence of the alleged planned upgrade remains conspicuously absent, leaving the door wide open for fears of insolvency to take hold.
AAX financial standing
At this stage there’s no evidence of the AAX’s financial standing as its balance sheet isn’t public. There’s also no direct evidence of any exposure to FTX. However the elephant in the room is the fact that an exchange with two million users has suspended services for “7 – 10 days” at a time that just happens to coincide with crypto’s “Lehman Moment”.
Either AAX rather inconveniently happened to schedule an upgrade at one of crypto’s watershed moments (an existential crisis some would argue) or the “upgrade” is being used as an excuse to buy time.
As Mike Alfred commented on Twitter in response to the news:
“I feel like this should be self-evident at this point but for the avoidance of doubt, solvent crypto platforms DO NOT close withdrawals. Period.”
It’s difficult to argue with Alfred’s reasoning. The Chainsaw reached out to the AAX vice president for commentary and whether there was evidence that the “upgrade” was indeed scheduled. No response was received at the time of publication.